Finance
A participation mortgage in commercial lending is one where:
AMultiple borrowers share one mortgage
BThe lender participates in the income or appreciation of the property in addition to receiving interest✓ Correct
CMultiple lenders share one loan
DBoth buyer and seller participate in financing
Explanation
In a participation mortgage (or equity participation loan), the lender receives interest payments plus a share of the property's income or appreciation. This gives the lender additional return beyond standard interest in exchange for potentially lower interest rates.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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